There has been an undeniable change in recent weeks but it is not an economic change. The economy continues to muddle through while corporate profit growth is slowing. The major change has been one of psychology. Investors are suddenly feeling comfortable with more risk and have been shifting their exposure towards equities. After years of obsessing over risk management investors have shifted their attention towards rewards.
Hedge fund managers have been increasing their gross and net exposure as every survey and prime broker report has shown. Large asset allocators such as family offices and pension funds are suddenly more comfortable with long only exposure as assets have been exiting bonds and hedge funds.
I prefer to buy at times when uncertainty is high and stocks are cheap. While in the long run this strategy has worked for me there can be long periods of time where I miss the party. There is no reason the market cant stay overvalued and participants remain over bullish. In the past the market has stayed overvalued for years at a time and it can happen again. In a relative performance world these sort of rallies tend to persist until they suck everybody in.
I continue to remain patient and am finding very little to buy. I have been selling stocks when they reach my price target but have not been able to replace many of them. The winds have indeed shifted but I am remaining patient. If one thing is for certain is that sentiment will one day cycle back to excess pessimism and when that happens I will be ready to buy.